Before you ink that contract ...

By Amey Stone

updated 4:50 p.m. ET April 14, 2005

Oh, the allure of starting a franchise! For relatively modest upfront fees, a new franchisee gets a proven business idea, a designated market, and savvy management and marketing support. Presto, you can step off the corporate treadmill and launch a growth business. Suddenly, you're your own boss.

It always sounds easy, but opening a franchise is far from foolproof. At best, "You're given a model that is successful in other markets that you can replicate," says Steven Bergenholtz, president of Franchising Ventures Group, a venture capital firm in Plano, Texas, that helps entrepreneurs build franchises in return for a share of the royalties. But, while the industry has cleaned up a lot from the 1970s, when it was rife with fraud, there are still a lot of businesses available for franchise that are not — and will never be — great opportunities. "People really have to do their due diligence," he says.

So before you quit your day job, make sure you understand what opening a franchise entails and are aware of some pitfalls to avoid. The following are six steps to get you started:

Make sure running a franchise is right for you. If it's running your own business you're after, you might be better off opening your own donut shop, rather than, say, a Dunkin' Donuts or Krispy Kreme.

"You're supposed to follow the method of doing business described by the franchisor," says David Kaufmann, senior partner at Kaufmann, Feiner, Yamin, Gildin & Robbins, a New York law firm that represents franchisors. He suggests asking yourself, "Can you follow orders and follow the system religiously?"

If you can't, you may chafe as a franchisee, and you may not even get the opportunity to start one. Steve Greenbaum, co-founder of PostNet, a Henderson, Nev., packaging and shipping franchise, says he gets between 400 and 600 inquiries a month, but only adds about 100 stores a year. He's looking for people who will follow the business system he designed.

"You have to make sure they are entrepreneurial, but not let them veer too far from the business," Greenbaum says. "We're rejecting a lot of potentially qualified people." Keep in mind that at the end of the day, a franchise is about creating a uniform experience for customers and building a brand that matches that experience, he says.

Investigate opportunities. This is the fun part. Read up about available franchises in your area, attend a franchising exposition, check out the Web sites of businesses you like for more information. "Step one is to figure out what you're interested in," Kaufmann says. There are a lot of options out there. "Hotels, real estate, janitorial — half the stores in the malls are franchises."

Franchise resources BusinessWeek Online Partner Franchise Solutions Federal Trade Commission International Franchise Association. American Association of Franchisees & Dealers American Franchisee Association SBA's Franchise Registry

When you decide on an industry you like, consider the market for that store or service in your area. Is there competition? Is there likely to be demand? Choose three or four franchise opportunities to study in more depth.

Don't ignore the option of buying an existing franchise, which has some inherent advantages over starting your own from scratch, including immediate cash flow and easier financing. "The franchisee is buying a working, living territory," says Sheila Bangs, director of franchise sales at Palm Springs, (Calif.)-based American Leak Detection. "They don't have to go out and start from scratch."

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